Real Estate Lesson Learned: Is Big Better?
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Title: Real Estate Lesson Learned: Is Big Better?
Word Count: 1473
Author: Mark Maupin
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Real Estate Lesson Learned: Is Big Better?
Copyright 2006 National Real Estate Network LLC
At one time in my life I was buying 7-8 Houses a month,
fixing them up and then reselling them. Then I got the
bright Idea that if I can buy and sell 7-8 a month, I can
buy and sell 80. This was a choice that eventually led me
to bankruptcy. This has not been that long ago. Twice in my
life I have made a lot of money and then took on a large
growth spurt and got a large learning experience in
business failure. The last one resulted in bankruptcy.
It is hard when things are going well to not be seduced by
more is better. When you have something working for you, it
is easy to become overconfident and start to think of
multiplying it. As with most things in life, you want to be
sure when you take on something, that you complete it.
Pumping up the volume puts you at risk of not having the
structures and being set up to deliver on what you are
committed to. You naturally encounter problems that were
not present on a smaller scale. It is hard when things are
going well to not be seduced by more is better. I had to
learn personally that pride Goethe before the fall. The
bottom line is that there are always good deals in Real
Estate! I say measure your success one house at a time. Buy
investor property, fix it up, resell it, rent, do a
lease-option, but do it one house at a time.
One of the most common mistakes I see in business is where
investors come into the business and think they need to do
multiple houses at a time. Try this on: Try doubling the
cost you think it will take to fix the property, doubling
the time you think it will take to rehab the property and
figure your holding costs doubled (insurance, mortgage
payments, taxes, lights, gas, rehab cost).
Great deals in Real Estate donít come in houses fixed and
ready to sell. The great buys come from houses that need
work. If you are just getting started, stick to cosmetic
rehabs (paint and carpet), Donít take on major rehabs. It
will take time to develop rehab crew. The most successful
people I see in Real Estate do one house at a time.
Failures are great; if you look at them and ask what action
was missing that would have made a difference?
One pitfall is using very expensive money. For years I ran
a business financed on money from Real Estate Investors who
are called hard moneylenders. They look at collateral and
loan money based on receiving interest can be 18% or higher
when you figure in the closing costs. When you get multiple
properties in this condition, you will have interest
payments that are going to be double and triple what
conventional financing is in Real Estate.
Now combine this with the common lie we tell ourselves that
we can repair the house and put it back on the market for
sale or rent in a short time. Your overhead will rise
because you will need a staff to manage and rehab
everything. Can you see this is a recipe for disaster for
everyone? Now if you are doing one house at a time, your
overhead will probably stay very low, with very little
staff. Therefore you have limited your expenditure of time,
money and aggravation.
At one time, my overhead was in excess of $50,000.00 per
month. I had to depend on other people to do everything,
including checking the work. A hundred percent of the
monies I was making went paying down my debts and I kept
telling myself I would turn it around tomorrow. I found
myself with houses that were not finished and houses being
lost in foreclosure and for taxes. That left me a very
motivated seller and bankruptcy was looming large. With my
overhead still there, I attempted to wholesale deals. I
decided I would no longer find, repair and resell homes.
Instead I would find great buys and sell them to other
Basically, I started my business over. It takes a great
amount of time to cultivate a list of investors interested
in buying deals. This business is built on the concept you
can borrow you way out of debt, but it just does not work.
You have family, friends, and business associates that may
get hurt or destroyed. Iím not saying this to tell you a
sad story, but rather in the hopes that by sharing it,
someone else can avoid the pain of my mistakes. Take from
this what you can learn for yourself. I am 53 years old and
starting over. I now have the knowledge to build a business
with the proper foundation. I teach Real Estate Investing
class now that look for pitfalls and what is needed to do a
successful deal one at a time.
My advice to you on handling real estate transactions is:
Use Title Companies What can happen to you when you fail to
get title insurance? We had a participant in one of our
seminars, who purchased a house to fix it up. He invested
over $40,000 into the home in both repairs and purchase
price. When he went to refinance, he found out the person
he purchased the house from was not in the chain of title.
In other words, he did not have a clear title. Whenever you
purchase a home, always close through a title company with
title insurance on the property. Title insurance is
protection that insures the borrower or lender that they
get the property with marketable title. They will only
insure the property for the purchase price or for the
amount of the mortgage.
Use a reputable lender
Interview lenders. Go to Real Estate Investor Clubs to find
out from other investors which companies are doing the best
job. Are you at risk when you use a lender that wants to
cross collateralize loans or wants personal guarantees? One
lender I know will get one-two year mortgages and demand a
right to lien all the properties you own to procure the
loan you are getting. Just beware, if you are buying the
property to fix up and resell, there are things that you
donít always plan on like: twice as much rehab cost as you
planned for, longer marketing time than you initially
thought, resulting in added holding costs, or maybe the
market moves the wrong direction and you canít sell the
property, so you rent it. Now one of your other properties
or even your personal residence needs to be refinanced. You
now have a lien showing against the property. Now what do
you do? Think before you jump. If you have purchased the
property right, you should be able to borrow money based on
the equity of that property - not youíre home and other
This same lender will ask for a personal guarantee signed
by you, your wife and your partner. This personal guarantee
allows his mortgage company to lien anything the partner
and wife own. Not only that, but this particular lender
demands that you use a Title Company he owns. Now when you
want to sell another one of your houses and this same cross
collateral loan will show up on any property you are
selling. Now you are faced with using his title company or
he wonít release his loan. Beware of putting yourself in a
situation where you are using a person who controls the
lending, title work, the appraiser and the Real Estate
Do you think, if you had your title work placed with a
company the Lender had ownership in, you might run into a
problem getting the documents released or have a clean
closing at the same title company? Why risk letting human
emotions drives a stake into your deals? Keep an arms
length distance within your dealings. If you are selling
homes or wholesaling property, let the buyer find his own
lender and make sure you get an independent title company.
Make sure there is not a conflict of interest in the Title
Company, Mortgage Company, and real estate company. Keep
the integrity in the deal. I am sure there are title
companies, real estate companies, and mortgage companies,
where there is common ownership that run very good
businesses and can separate the conflicts of interests and
profit centers. However, to protect yourself, make sure you
receive proper disclosure of common ownership. You can
always look at the volume of business they are doing in
each business and check with the state Licensing Dept. for
any complaints against the firm.
About the Author:
Ralph Mark Maupin has has purchased in excess of 3,500
single-family homes and many multi family properties. Mark
teachs real estate investing seminars, and has real estate
mentoring program. mrleaseoption.com